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Payback periodis a popularcapital budgetingtechnique which states the total time required to recover the investment made in the project.Payback period states the time at the end of which all the cash invested is recovered. Our tutors atTranstutors.comare highly qualified and are trained to provided qualityhomework helpandassignment helpin topics related to finance.

Though this technique of capital budgeting isadvantageousto many industries where there exists demand for quick recoup of cash invested in the projects or a highriskof obsolescence, in appraising various capital investment projects as it is easy to understand and compute and serve as an estimate ofproject’s risks, it is criticized by projects analysts due to certain drawbacks which follows this method of capital budgeting. Our tutors atTranstutors.comare expert in finance from years and years, we provide excellentfinance homework and assignment help

These drawbacks of payback period technique can be enumerated as below:

(v) The major limitation of the payback period is that it does not considertime value of moneyand therefore is considered inefficient for decisions making in capital budgeting, as we know that money received in different years is not compared unless it is discounted with the present value discount factor. This is due to the fact that purchasing power of money is not the same over different years.

(vi) The second limitation of this technique is its failure to consider an investment’s total profitability; it stresses more on capital recovery rather thanprofitability.

(vii)It only considers the cash flows from the initiation of the project until itspayback periodand ignores the cash flows after the payback period, which may give misleading results to the project analyst post payback period may give a different picture and may turn out to be unacceptable.

(viii) Lastly, use of the payback period technique may cause organizations to place too much emphasis on short payback periods there by ignoring the need to invest in long-term projects with larger gestation periods that would be more profitable and would enhance its competitive position.

Thus these afore stated drawbacks of payback period technique makes this techniques unreliable for evaluation and analysis of different capital investment projects. Forward all your queries related to finance at ourhomework helpandassignment helpsection and we shall ensure solution for all your queries at cheapest rates possible.